Foreign Market Entry Strategies

Indirect Strategies
- Exporting
- Licensing
- Management Contract
- Turnkey Operations
}

Foreign Direct Investment (FDI) Strategies

- Acquisition vs. Greenfield
- Assembly vs. Manufacturing
- Sole Venture vs. Joint Venture
}

Advantages
- simple
- low risk
} Disadvantages
- low profit
- trade barriers
- difficult when home currency is strong
}

Advantages
- quick expansion (entry) when capital is scarce
- very low risk
- allowing host country to gain technology and create
jobs
- allowing host country and licensee to keep most profit
- circumventing trade barriers
}

Disadvantages
- very low profit
- licensee becoming future competitor
- licensee's poor performance
- difficulty in terminating licensing agreement
}

Advantages
- minimum investment
- minimum political and economic risks
} Disadvantages
- low profit (management fee as compensation)
}

Advantages
- maximizing profit while minimizing risk
- sharing of resources
- allowing host country to gain technology and create
jobs
- circumventing trade barriers
- local partner's market knowledge
- local partner's political connections
}

Disadvantages
- conflict with partner
- sharing of profit
- loss of control
- difficulty in terminating relationship
}

Advantages
- job creation for host country
- host country gaining resources (capital and technology)
- low trade barriers
- higher profit
- utilization of local labor
- host country's economic incentives
}

Disadvantages
- expropriation risk
- large capital investment
}

Advantages
- circumventing trade barriers
- utilization of local labor
} Disadvantages
- local product-content laws
}

Advantages
- quick market penetration
- synergy
} Disadvantages
- host country's resentment
- high acquisition costs
- unforeseen problems
}

Mergers and Acquisitions

} Licensing Agreements
} Joint Ventures
- all joint ventures are strategic alliances
- not all strategic alliances are joint ventures
- not necessary for strategic alliances to have equity investment
- not necessary for strategic alliances to form a new business
entity
}

secured domestic area in international

commerce
} legally outside a country's customs territory
} area designated by a government for duty-free
entry of goods
}

not used basically for warehousing

} future: benefit derived from manufacturing, not
storing.
} Advantages
- job retention and creation
- facilitating imports
- facilitating exports
}

}
}

Singer Sewing Machine first franchise

(mid-19th century)
Automobile (e.g. Ford), petroleum
products (e.g. Shell), soft drinks (e.g.
Coca Cola)
Food and restaurants (e.g. McDonalds,
Starbucks)

}
}

Home markets saturated attractive

opportunities overseas
Lack of/relaxation of regulations in most
countries
Expansion of international trade
Exposure to international media

}
}
}
}
}
}

What is franchising?
Types of franchising
Why franchise? Why is franchising important
to SMEs?
Considerations for franchisor/franchisee
Pitfalls/Be careful
Singapore Experience

A franchise operation is a contractual relationship

between the franchisor and franchisee in which the
franchisor offers or is obliged to maintain a continuing
interest in the business of the franchisee in such areas
as know-how and training; wherein the franchisee
operates under a common trade name, format and/or
procedure owned or controlled by the franchisor, and in
which the franchisee has or will make a substantial
capital investment in his business from his own
resources.
- Definition by International Franchise Association

}
}
}
}

Legal and commercial arrangement concerning the

successful business of a franchisor
Use of franchisors trade name, format, system and/or
procedure under licence
Means to raise capital and expand quickly
Assistance to franchisee
Marketing, management,
standards specifications

advertising,

store

design,

Payment by franchisee by way of royalty, licensee fee

or other means

Franchising is more than distributorship

Extends to an entire operation or method of
business
Greater assistance, control and longer duration
Distributor merely re-sells products to retailers or
customers

3 main types of franchise:

Product distribution franchise;

Business format franchise; and
Management franchise.

A product distribution franchise model is very

much like a supplier-dealer relationship.

Typically, the franchisee merely sells the

franchisors products. However, this type of
franchise will also include some form of
integration of the business activities.

Examples of famous product distribution

franchise:

Produces the
syrup concentrate
Sells the syrup
concentrate

FRANCHISEE

Produces the final

drink

Retail Stores
Restaurants & F&B
Outlets

Vending Machine
Operators

In a business format franchise, the integration of the

business is more complete.

The franchisee not only distributes the franchisors

products and services under the franchisors trade
mark, but also implements the franchisors format
and procedure of conducting the business.

outlet in
Sale, Australia

outlet in
Marseille, France

A form of service agreement.

The franchisee provides the management

expertise,
format
and/or
procedure
for
conducting the business.

}
}
}
}
}
}
}

Leveraging on a recognised brand name

Enhancing business image
Ensuring consistent quality
Attaining higher productivity/better motivated
staff
Access to good locations
Economies of scale
Reducing risks of failure

Franchises offer important pre-opening support:

site selection
design and construction
financing (in some cases)
training
grand-opening program

Franchises offer ongoing support

training
national and regional advertising
operating procedures and operational assistance
supervision and management support
increased spending power, access to bulk
purchasing and economies of scale

}
}
}
}

Developing franchise concept

Market research
Familiarity with local laws and regulations
Providing training and support to
franchisees

}
}
}
}

Criteria for choosing franchisees

Control over franchisees
Supply of products/materials to franchisees
Intellectual property rights issues, e.g. trade
mark registration

}
}

}
}

Demand
Profitability of franchise, and length of
time required to recoup investment
Track record of franchisor
Support rendered to other franchisees

}
}
}
}

Experience and profitability of other

franchisees
Existence of competition
Capital required
Demands of franchisor, e.g. income
projections, deadline to open more
franchise outlets

}
}
}
}
}
}
}

Regulated by contract which usually covers:

Initial fee
Royalty fee/Management fee
Capital required from franchisee
Territory/Area of operation
Duration of license and renewal
IPRs
Termination

The franchisee is not completely independent.

In addition to the initial franchise fee, franchisee must

pay ongoing royalties and advertising fees.

Franchisee must be able to balance restrictions and

support provided by the franchisor with their own
ability to manage the business

A damaged image or franchise system can result

if other franchisees perform poorly or the
franchisor has financial problems.

The duration of a franchise is usually limited and

the franchisee may have little or no say
concerning termination

}
}

Not reading, understanding and/or asking questions

about the franchisee agreement and other legal
documents
Not understanding the responsibilities of a franchisee
and the rights and obligations of a franchisor
Not seeking sound legal and financial advice
Not verifying oral representations of franchisor

}
}
}

Not analyzing the local market in advance

Not analyzing the competition
Not making thorough due diligence of the
franchisor
Not choosing the right location

}
}
}
}
}

http://www.whichfranchise.com
http://www.franchise.org
http://www.franchisewebsite.com
http://www.franchise.com/
http://thefranchisemall.com/